Report: Lawsuits cost Texans $38 billion a year

(The Center Square) – The financial impact of tort lawsuits on Texas households cost $38 billion in 2022, according to a new report by the U.S. Chamber of Commerce.

The report cites tort costs ranging from expenses associated with litigation, to compensation paid to claimants, and administrative costs to process claims as examples of costs impacting Texans and the state economy. They "affect everything from insurance premiums to the overall cost of living, making it crucial to understand their impact on Texas households," the report says.

The "tort system" refers to the civil legal system that provides a mechanism for individuals and businesses to obtain monetary damages, penalties or other civil remedies for harm they argue others caused them. Tort claims are primarily litigated in local, state and federal courts and through arbitration and mediation.

The system can provide a meaningful way to provide justice for those who suffer real harm but has been exploited, the chamber argues. Some attorneys file abusive lawsuits, use deceptive advertising or involve third-party funders who finance litigation but reduce the amount a plaintiff might otherwise receive, it says.

As a result, tort lawsuit costs have increased at a rate of 9.7% every year from 2016 to 2022, according to its analysis, with Texas representing "one of the leading states in year-over-year growth in tort costs."

"By implementing targeted reforms and promoting a more efficient legal process, Texas can work towards reducing these costs and ensuring a fairer, more sustainable legal environment for its residents," the chamber argues.

The Lone Star Alliance agrees. It represents nearly 950 Texas job creators, citizens, and business associations advocating for lawsuit reform.

Inflationary and litigation costs have decreased the availability of insurance for individuals and businesses in Texas and have forced some businesses to increase prices, lay off employees, or close, the alliance argues.

"Small businesses are burdened with soaring insurance premiums that jeopardize their survival, while the constant wave of lawsuits drives up the costs of essential items like food and medical care," Imad Sarkis, vice president of Exxpress Mart convenience stores in Beaumont, an LSEA member, said.

Dustin Glover, president of Threlkeld & Company Insurance in Tyler, an LSEA member, said that "Insurance rates have reached unprecedented levels," pointing to auto insurance rates consistently increasing by between 10% and 30% annually.

"Unfortunately, I've seen these rising costs force businesses in Texas to shut down," he said. "The highly litigious environment in Texas has left insurance carriers so wary of going to trial that they often settle even minor accidents for six- or seven-figure amounts, regardless of fault. Texas ranks as the third-worst state for insurance litigation, behind only Mississippi and Louisiana. This environment has driven many commercial auto and umbrella insurance carriers to exit the Texas market entirely, drastically reducing the number of companies willing to provide quotes."

Fred Heldenfels IV, president and CEO of Heldenfels Enterprises, an LSEA member, points to families across Texas "paying thousands of dollars more than they should for goods and services every year … because lawyers have figured out how to game our court systems and put intense pressure on insurance companies to settle any case, regardless of the facts." These costs are also increasing "at an unsustainable rate of almost 10% annually," arguing that the Texas legislature "must restore fairness and transparency to our court system before Texans are completely priced out of their homes and businesses."

Alex Hinojosa, Jr, president/CEO of Hino Gas Sales, Inc, an LSEA member, also points to costs impacting the commercial fleet business. When some law firms win multi-million or billion-dollar lawsuits, "every one of those dollars comes out of [consumers'] pockets, and all of us are paying more for everything due to rampant abuse of our court system," he said. "As commercial fleet owners, we are paying five to six times more for Commercial Auto Liability Insurance than we were five years ago, and we are all forced to pass on these excessive costs to the consumer."

Tort lawsuit costs have increased nationwide, totaling $529 billion in 2022, according to an analysis published by the chamber's Institute for Legal Reform. That cost is equivalent to 2% of U.S. GDP, or more than $4,200 per household, it says.

If legislative reforms aren't implemented and current trends continue, it projects that tort costs will surpass $900 billion by 2030 nationwide.

The ILR published a report and interactive map highlighting tort costs per household. Texas ranks tenth overall when the District of Columbia is included, and ninth among states. Its total tort cost per household in 2022 was $4,594, according to the report. Delaware ranked first ($8,026); followed by New York ($7,027); the District of Columbia ($6,347); Florida ($5,768) and New Jersey ($5,525).

Delaware's torts costs also represent 3.46% of its GDP, the highest in the country. Florida's ranks second (3.35%); followed by Louisiana (2.65%), New York (2.61%) and Georgia (2.6%).